Question

Explain the demerits of a limited partnership.

Answer 1

1. Limited Control: Limited partners cannot participate actively in management, which may deter some investors, restricting their influence.
2. Unlimited Liability for General Partners: General partners bear full responsibility for all liabilities, risking personal assets, which can be a significant disadvantage.
3. Complexity: Requires formal agreement and legal compliance. Registering under the Act and managing is more complex than general partnerships.
4. Potential Conflicts: Since limited partners seek returns without operational input and general partners manage the firm, disagreements may arise regarding business decisions and profit sharing.